This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, click the "Reprints" link at the bottom of any article.

August 29, 2013

Want to Retire on Less Than $1,200 a Month? Try Living Abroad

More and more retirees and pre-retirees are considering this option to save money and add some adventure to their lives

If first-world health care is important to you, stick to a major city like Quito, Ecuador, Kathleen Peddicord says.

More On Tax Planning

from The Advisor's Professional Library

Cafeteria Plans
The income tax treatment of cafeteria plans is key to their popularity. Learn how to maximize the tax benefits of these “flexible benefit plans”.

Long Term Care Insurance: Premiums
While premiums for qualified long-term-care insurance may be deductible as medical expenses there are exceptions to this general rule. Learn how to avoid unnecessary tax liabilities.

For some families, the end of summer means back-to-school mayhem. But for those near or in retirement, it could be time to move to a warmer climate to enjoy nice weather and a lower cost of living for more of the year.

Kathleen Peddicord (right), founder and publisher of Live and Invest Overseas, will be meeting about 250 people in early September in San Antonio to help them carefully consider their options.

What we are finding is that the average age of our attendees is getting younger and younger.

For instance, at one of our events in Panama, where we are based, held about 20 years ago, some 80% of the 100 guests or so would be age 60 and up.

Now, more and more, we meet with people in their 40s and 50s, and even some in their 20s and 30s. For example, a 28-year-old came to a recent meeting in Panama.

These are people who are thinking big picture and long term.

Can you explain how people can live for $1,200 a month or less?

At our events, we have breakout sessions about 22 countries where this is possible and about focused topics, like taxation.

For $700-$800 a month, you can live in handful of locations on such a modest budget, though probably not in Mexico, which is more like $1,200 and up a month.

While there are off-the-beaten-track places in Ecuador, say, or Nicaragua, it’s really Asia where you have the cheapest options — Vietnam, Thailand, Malaysia and the Philippines.

In Mexico and other parts of Latin America, the trend has been for the cost of living to go up, but Asia is one of the most affordable parts of the world to live in. You can budget $1,000 or less if you go really local.

This is about how you live: Do you take public transportation rather than having a car? Do you use your air conditioner some of the time rather than 24/7?

When you talk about places that are some distance from major cities, there are cheap places in Ecuador, Nicaragua and Panama where you can live for $400-$500 a month. But in parts of Asia, you can even live for as little as $200-$250 a month.

If you have a bigger budget, it’s also worth noting that you can get household help — which is a big advantage — at an affordable price, say $100 a month or less in Vietnam vs. $200-$250 a month in Latin America.

How about health care costs?

This is a significant issue, and this is where Asia really shines with medical care that is a fraction of the cost compared with the U.S. and Latin America.

Note we are talking about places in Thailand well outside of Bangkok — say near Chang Mai in a village, where there are no Miami-style hospitals but local health care that you can get for a few dollars.

If you are not willing to get over the health care hump, which can be one of the biggest hurdles to a lower budget, then you need to stick to a major population center.

You can still cut costs and have an adventure by living overseas … but you’ll need to be somewhere like Panama City or Quito, Ecuador, or Montevideo [Uruguay].

In other words, if you want first-world health care, you are not going to be able to retire on $800 a month. But with $1,200 a month, there are many good options, and you don’t have to be so remote.

Why are so many people interested in living abroad today?

There are so many factors behind this. First, there’s a big and growing population looking for the best possible way to retire.

The Baby Boomers are a huge force. They want the best retirement options and look carefully to identify them.

Also, they see threats to Social Security, have questions about the costs of Obamacare, and face high-cost assisted living and retirement communities. Decent housing is very expensive in the United States, as is health care.

Look at all the other cost factors. Maybe you’ve lost equity in your home or your retirement portfolio has been hit or isn’t what you expected. Then there are the worries over Social Security on top these concerns.

People are better traveled, healthier, better educated and more interested in living overseas than ever before. Some Baby Boomers may be fed up with the U.S. government and worried about their financial future, so they decide to try something else. They are asking themselves, why not opt out and have some fun?

As people, especially from areas like the Midwest, ask this question, a very interesting migration is taking place.

What do you say to some of your clients about their relationship with their financial advisors as they move overseas?

We encourage them to keep this relationship.

Of course, when some people move overseas, they choose to break all their ties and cash out their portfolio, business assets, etc.

Much more common, however, is a compromise approach. They move overseas part time, say to Belize, and spend half the year in Florida with their grandkids. They might keep some of their money overseas in a foreign bank account.

With financial matters, there needs to be diversification. There’s no 100% guarantee with anything.

To deal with that ... we recommend that investors not take all their assets with them. The key to success is diversification: keep some presence and assets in the United States, which for some investors means maintaining their relationship with a financial advisor. There’s generally no reason to walk away from that.

I also recommend working with that advisor to diversify what you have, so you have some holdings in foreign markets and currencies and are not 100% at the mercy of U.S. markets, politics, etc.

It’s also important to maintain a relationship with an accountant or tax consultant in both places. When you move to a new country, your U.S. tax burden may be reduced. It depends on lots of factors, but discussing this with two tax experts is helpful.